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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________________
Commission file number 0-15327
CYTRX CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 58-1642740
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
154 Technology Parkway, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
(770) 368-9500
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(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
-- ---
Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and
outstanding as of August 11, 1997: 7,422,588.
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CYTRX CORPORATION
Form 10-Q
Table of Contents
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996 3
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month and Six Month Periods Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Six Month Periods Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 2 Changes in Securities 12
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
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(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,761,957 $ 1,604,003
Short-term investments 8,393,008 10,273,108
Accounts receivable, net 2,524,930 643,079
Inventories 11,045 9,508
Other current assets 167,932 532,399
------------ ------------
Total current assets 15,858,872 13,062,097
Property and equipment, net 4,949,497 5,012,809
Other assets:
Long-term investments -- 5,096,353
Notes receivable 632,786 975,000
Acquired developed technology, net 3,574,356 --
Other 59,901 153,063
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Total other assets 4,267,043 6,224,416
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Total assets $ 25,075,412 $ 24,299,322
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 941,437 $ 586,920
Accrued liabilities 1,676,443 1,123,476
Unearned revenue 46,056 251,192
------------ ------------
Total current liabilities 2,663,936 1,961,588
Minority interest in Vaxcel, Inc. 735,685 --
Commitments
Stockholders' equity:
Preferred stock, $.01 par value, 1,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.001 par value, 18,750,000 shares authorized;
7,966,274 and 7,945,203 shares issued at June 30, 1997
and December 31, 1996, respectively 7,966 7,945
Additional paid-in capital 65,103,567 62,653,015
Treasury stock, at cost (555,154 and 507,750 shares held at
June 30, 1997 and December 31, 1996, respectively) (2,198,533) (2,021,669)
Accumulated deficit (41,237,209) (38,301,557)
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Total stockholders' equity 21,675,791 22,337,734
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Total liabilities and stockholders' equity $ 25,075,412 $ 24,299,322
============ ============
</TABLE>
See accompanying notes.
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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended June 30, Six Month Period Ended June 30,
--------------------------------- --------------------------------
1997 1996 1997 1996
------------ ----------------- ------------ ----------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 3,322,250 $ 479,894 $ 7,065,330 $ 817,419
Investment income, net 220,024 316,595 464,559 620,567
License fees -- 50,000 -- 50,000
Collaborative and grant income 13,322 -- 105,989 --
Other 27,129 15,667 52,823 33,452
------------ ------------ ------------ ------------
3,582,725 862,156 7,688,701 1,521,438
Expenses:
Cost of sales 2,433,967 367,637 4,758,612 480,352
Research and development 909,526 553,357 1,687,090 1,540,576
Selling, general and administrative 1,676,791 1,086,541 3,352,918 1,957,828
Acquired research and development 951,017 -- 951,017 --
------------ ------------ ------------ ------------
5,971,301 2,007,535 10,749,637 3,978,756
------------ ------------ ------------ ------------
Net loss before minority interest (2,388,576) (1,145,379) (3,060,936) (2,457,318)
Minority interest (125,284) -- (125,284) --
------------ ------------ ------------ ------------
Net loss $ (2,263,292) $ (1,145,379) $ (2,935,652) $ (2,457,318)
============ ============ ============ ============
Net loss per share (see Exhibit 11) $ (0.31) $ (0.15) $ (0.40) $ (0.31)
============ ============ ============ ============
</TABLE>
See acompanying notes.
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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Period Ended June 30,
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1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,935,652) $ (2,457,318)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 324,659 252,364
Charge for acquired research and development 951,017 --
Minority interest in net loss (125,284) --
Net change in assets and liabilities (503,450) (691,458)
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Total adjustments 646,942 (439,094)
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Net cash used by operating activities (2,288,710) (2,896,412)
Cash flows from investing activities:
(Increase) decrease in short-term investments 1,880,100 (11,181,158)
Decrease in long-term investments 5,096,353 --
Capital expenditures, net (201,332) (123,274)
Net cash paid for acquisition (1,239,355) --
------------ ------------
Net cash provided (used) by investing activities 5,535,766 (11,304,432)
Cash flows from financing activities:
Net proceeds from issuance of common stock 87,762 70,160
Purchase of treasury stock (176,864) (40,001)
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Net cash provided (used) by financing activities (89,102) 30,159
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Net increase (decrease) in cash and cash equivalents 3,157,954 (14,170,685)
Cash and cash equivalents at beginning of period 1,604,003 16,645,570
------------ ------------
Cash and cash equivalents at end of period $ 4,761,957 $ 2,474,885
============ ============
</TABLE>
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CYTRX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
1. DESCRIPTION OF COMPANY AND BASIS OF PRESENTATION
CytRx Corporation's business strategy is to build shareholder value
through the development and commercialization of high value human therapeutic
products and the successful development and rollout of its promising subsidiary
companies. CytRx's Flocor (CRL-5861) is being developed to treat acute sickle
cell crisis and other vascular diseases. Vaxcel, Inc. is developing the
Optivax(R) vaccine delivery system to enhance the effectiveness of vaccines.
VetLife, Inc. markets and distributes products to enhance food animal growth.
Proceutics, Inc. provides high quality preclinical development services to the
pharmaceutical industry. References herein to "the Company" include CytRx and
its subsidiaries.
The accompanying condensed consolidated financial statements at June
30, 1997 and for the three month and six month periods ended June 30, 1997 and
1996 include the accounts of CytRx together with those of its subsidiaries and
are unaudited, but include all adjustments, consisting of normal recurring
entries, which the Company's management believes to be necessary for a fair
presentation of the periods presented. All significant intercompany transactions
have been eliminated. Interim results are not necessarily indicative of results
for a full year. The financial statements should be read in conjunction with the
Company's audited financial statements in its Form 10-K for the year ended
December 31, 1996.
2. INVENTORIES
Inventories at June 30, 1997 and December 31, 1996 are comprised of the
following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
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<S> <C> <C>
Finished goods $ 8,009 $ 6,144
Raw materials 3,036 3,364
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$11,045 $ 9,508
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</TABLE>
3. REVERSE STOCK SPLIT
All share and per share information in the accompanying condensed
consolidated financial statements and notes thereto has been retroactively
adjusted to reflect a one-for-four
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reverse stock split approved on February 5, 1996 by the Company's
stockholders, effective February 6, 1996.
4. NET LOSS PER COMMON SHARE
Net loss per common share is calculated in accordance with Accounting
Principles Board Opinion No. 15, Earnings per Share, and is based on the
weighted average number of common shares and common share equivalents
outstanding during each period. Stock options and warrants outstanding are
excluded from the computation of net loss per share since the effect is
antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The adoption of Statement
No. 128 will not impact the Company's calculation of net loss per share for the
three month or six month periods ended June 30, 1997 and 1996.
5. ACQUISITION OF ZYNAXIS, INC.
In December 1996 CytRx, Vaxcel and Zynaxis, Inc. ("Zynaxis") signed an
agreement whereby Zynaxis would be merged with a wholly-owned subsidiary of
Vaxcel. At that time Zynaxis was a publicly-held biotechnology company engaged
in the development of certain vaccine technologies. The transaction was approved
by the Zynaxis stockholders at a meeting held on May 21, 1997 and was
consummated as of that date.
Under the terms of the agreement all of the outstanding shares of
Zynaxis were converted into shares of Vaxcel based upon certain exchange ratios
defined in the agreement, resulting in the issuance of an aggregate of 12.5% of
the outstanding (post-merger) shares of Vaxcel common stock at the date of
closing. The merger was treated as a purchase by Vaxcel and constitutes a
tax-free reorganization for Zynaxis stockholders.
Pursuant to the agreement, CytRx was to provide up to $2 million to
Zynaxis under a secured credit facility during the period prior to closing of
the merger, at which time the outstanding principal and interest was to be
contributed to the capital of Vaxcel, together with additional equity in the
amount of $4 million less the outstanding principal and interest of the secured
note. At the time of closing the outstanding principal and interest of the
secured note to Zynaxis was approximately $1.7 million, resulting in a net cash
infusion to Vaxcel of approximately $2.3 million.
Of the $4,551,000 excess purchase price over the estimated fair value
of the net assets acquired from Zynaxis, $3,600,000 has been recorded as an
intangible asset (Acquired
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Technology) and is being amortized over 15 years. The remaining $951,000 has
been recorded as a charge for acquired research and development in the
accompanying statement of operations.
The following table presents unaudited pro forma operating results for
the six months ended June 30, 1997 and 1996, as if the acquisition of Zynaxis
had occurred on January 1 of each period.
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Revenues $ 8,467,000 $ 2,341,000
Net loss before minority interest (2,432,000) (4,969,000)
Minority interest (129,000) (378,000)
Net loss $(2,303,000) $(4,591,000)
Net loss per share $ (.31) $ (.58)
</TABLE>
6. ADOPTION OF SHAREHOLDER PROTECTION RIGHTS PLAN
Effective April 16, 1997, the Company's Board of Directors declared a
distribution of one Right for each outstanding share of the Company's Common
Stock to stockholders of record at the close of business on May 15, 1997 and for
each share of Common Stock issued by the Company thereafter and prior to a
Flip-in Date (as defined below). Each Right entitles the registered holder to
purchase from the Company one ten-thousandth (1/10,000th) of a share of Series A
Junior Participating Preferred Stock, at an exercise price of $30. The Rights
are generally not exercisable until 10 business days after an announcement by
the Company that a person or group of affiliated persons (an "Acquiring Person")
has acquired beneficial ownership of 15% or more of the Company's then
outstanding shares of Common Stock (a "Flip-in Date").
In the event the Rights become exercisable as a result of the
acquisition of shares, each Right will enable the owner, other than the
Acquiring Person, to purchase at the Right's then current exercise price a
number of shares of Common Stock with a market value equal to twice the exercise
price. In addition, unless the Acquiring Person owns more than 50% of the
outstanding shares of Common Stock, the Board of Directors may elect to exchange
all outstanding Rights (other than those owned by such Acquiring Person) at an
exchange ratio of one share of Common Stock per Right. All Rights that are owned
by any person on or after the date such person becomes an Acquiring Person will
be null and void.
The Rights have been distributed to protect the Company's stockholders
from coercive or abusive takeover tactics and to give the Board of Directors
more negotiating leverage in dealing with prospective acquirors.
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Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
At June 30, 1997 the Company had cash and investments of $13.2 million
and net assets of $21.7 million, compared to $17 million and $22.3 million,
respectively, at December 31, 1996. Working capital totaled $13.2 million at
June 30, 1997, compared to $11.1 million at December 31, 1996. Working capital
at December 31, 1996 excludes $5.1 million of investments classified as
non-current assets which mature in early 1998 that are included in working
capital at June 30, 1997.
Management believes that cash and investments on hand, combined with
interest income and operating revenues, will be sufficient to satisfy the
Company's liquidity and working capital needs for the next several years, but it
is possible that additional funding may be required to accomplish the necessary
testing and data collection procedures prescribed by the U.S. Food and Drug
Administration for the commercialization of any products for human use.
Definitive statements as to the time required and costs involved in reaching
certain objectives for the Company's products are difficult to project due to
the uncertainties of the medical research field. Requirements could vary
depending upon the results of research, competitive and technological
developments, and the time and expense required for governmental approval of
products, some of which factors are beyond management's control.
During 1996 and 1997 the Company received federal government funding
for certain research and development activities via several Small Business
Innovative Research (SBIR) grants. The Company will continue to seek government
assistance for its product development efforts as appropriate and available.
Additional funding for research and development expenditures is expected to be
obtained through joint ventures and product licensing arrangements with other
companies. CytRx also anticipates that it may raise funds through equity
financings of one or more of its subsidiaries, either directly by the subsidiary
through issuance of the subsidiary's stock, or through sale by CytRx of a
portion of its ownership in a subsidiary. These statements regarding the
Company's plans for future financing are forward-looking statements that are
subject to a number of risks and uncertainties. The Company's ability to obtain
future financings through joint ventures, product licensing arrangements, equity
financings or otherwise is subject to market conditions and the Company's
ability to identify parties that are willing and able to enter into such
arrangements on terms that are satisfactory to the Company. There can be no
assurance that the Company will be able to obtain future financing from these
sources.
Effective May 21, 1997 CytRx's then wholly-owned subsidiary, Vaxcel,
merged with Zynaxis, a publicly-held biotechnology company (see Note 5 to
Financial Statements). Pursuant to the merger agreement, CytRx provided $4
million in equity funding to Vaxcel, less the outstanding principal and interest
drawn on a $2 million secured credit facility by Zynaxis during
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the period prior to closing of the merger. Subsequent to the merger, CytRx
owns approximately 87.5% of Vaxcel, with the remaining 12.5% held by the former
Zynaxis shareholders.
During 1995 the Company formed a new subsidiary, Proceutics, Inc., to
provide preclinical development services to the pharmaceutical industry. CytRx
contributed existing property and staff resources to the venture, which
commenced formal operations in January 1996. Although Proceutics continues to
provide services to its affiliates, revenues derived from third party sources
are contributing to the Company's consolidated liquidity and capital resources.
In January 1996 VetLife signed an agreement with IVY Laboratories, Inc.
to market and distribute IVY's line of FDA-approved cattle growth products and
devices in North America beginning January 1, 1997. In September 1996 VetLife
signed an agreement with Elanco Animal Health, a division of Eli Lilly and
Company, whereby VetLife became the exclusive U.S. supplier of Elanco's
Compudose cattle growth promotant products, effective October 1, 1996. Revenue
generated from these arrangements are offsetting VetLife's product development
efforts and contributing to the Company's consolidated liquidity and capital
resources.
At December 31, 1996 the Company has net operating loss carryforwards
for income tax purposes of approximately $37 million, which will expire at
various dates through 2011 if not utilized. The Company also has research and
development credits available to reduce income taxes, if any, of approximately
$1.1 million. Based on an assessment of all available evidence including, but
not limited to, the Company's limited operating history and lack of
profitability, uncertainties of the commercial viability of the Company's
technology, the impact of government regulation and healthcare reform
initiatives, and other risks normally associated with biotechnology companies,
the Company has concluded that it is more likely than not that these net
operating loss carryforwards and credits will not be realized and, as a result,
a 100% deferred tax valuation allowance has been recorded against these assets.
Such valuation allowance had no impact on reported net losses.
Results of Operations
The following table presents the breakdown of consolidated results of
operations by operating unit for the three month and six month periods ended
June 30, 1997 and 1996. Although the subsequent discussion addresses the
consolidated results of operations for CytRx together with its subsidiaries,
management believes this presentation of net results by operating unit is
important to an understanding of the consolidated financial statements taken as
a whole.
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<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
(in thousands) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
CytRx $ (876) $ (581) $(1,497) $ (960)
Proceutics (219) (176) (305) (580)
Vaxcel (1,319) (220) (1,662) (513)
Vetlife 207 (149) 581 (330)
Consolidation Adjustments (56) (19) (53) (74)
------- ------- ------- -------
Consolidated $(2,263) $(1,145) $(2,936) $(2,457)
======= ======= ======= =======
</TABLE>
Consolidated net sales for the three month and six month periods ended
June 30, 1997 were $3,322,000 and $7,065,000, respectively, as compared to
$480,000 and $817,000, respectively, in 1996. The significant components of net
sales are shown below.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -------------------------
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product Sales (VetLife) $ 2,714 $ -- $ 5,794 $ --
Product Sales (CytRx) 106 105 234 228
Services (Proceutics) * 385 280 821 435
Services (CytRx) 117 95 216 154
------- ------- ------- -------
Consolidated $ 3,322 $ 480 $ 7,065 $ 817
======= ======= ======= =======
</TABLE>
* excludes affiliate sales
Cost of sales were $2,434,000 (73% of net sales) during the second
quarter of 1997 as compared to $368,000 (77% of net sales) in 1996. For the six
month period ended June 30 cost of sales were $4,759,000 (67% of net sales) in
1997 versus $480,000 (59% of net sales) in 1996. This increase in cost of sales
is directly attributable to the sales activities of VetLife, which initiated
sales and marketing activities during the fourth quarter of 1996, as well as
increasing third party sales for Proceutics.
Investment income was $220,000 and $465,000 during the three month and
six month periods ended June 30, 1997 as compared to $317,000 and $621,000 for
the same periods in 1996, corresponding to reductions in cash and investment
balances.
Research and development expenditures for the three month period ended
June 30, 1997 were $910,000 as compared to $553,000 in 1996. For the six month
period research and development expenditures totalled $1,687,000 as compared to
$1,541,000 in 1996. Contributing to the increase for 1997 was the initiation in
April 1997 of a human clinical trial to evaluate Flocor (CRL-5861) in sickle
cell patients suffering acute vaso-occlusive crises. In connection with Vaxcel's
acquisition of Zynaxis, the Company recorded a non-recurring charge of $951,000
for acquired research and development. This charge is reported as a separate
line item on the accompanying Statement of Operations.
Selling, general and administrative expenses for the three month period
ended June 30, 1997 were $1,677,000 as compared to $1,087,000 in 1996. For the
six month period selling, general and administrative expenses totalled
$3,353,000 as compared to $1,958,000 in 1996.
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This increase is primarily attributable to the initiation of selling activities
for VetLife. Management believes that inflation had no material impact on the
Company's operations during the three year period ended December 31, 1996.
PART II -- OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES
As reported on the Company's report on Form 8-K filed April 17, 1997,
on April 16, 1997, the Board of Directors of the Company declared a dividend of
one preferred stock purchase right (a "Right") for each outstanding share of
common stock, par value $.001 per share (the "Common Shares"), of the Company.
The dividend was payable on May 15, 1997, (the "Record Date") to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one ten-thousandth (1/10,000th) of a share of
Junior Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a price of $30 per one ten-thousandth of a
Preferred Share (the "Exercise Price"), subject to adjustment. The description
and terms of the Rights are set forth in the Shareholder Protection Rights
Agreement, as the same may be amended from time to time (the "Rights
Agreement"), dated as of April 16, 1997 between the Company and American Stock
Transfer & Trust Company, as Rights Agent (the "Rights Agent").
Until the date on which certain events take place (the "Separation
Time"), the Rights will be evidenced by, with respect to any Common Share
certificate outstanding on the Record Date, such Common Share and a Summary of
Rights mailed to each holder of record on the Record Date. The term "Separation
Time" means the close of business on the earlier of (a) the tenth business day
(or such earlier or later date as may be determined by the Board of Directors of
the Company) following a public announcement by the Company that a person or
group of affliated or associated persons has acquired beneficial ownership of
15% or more of the outstanding Common Shares (collectively, an "Acquiring
Person") (the "Flip-in Date") or (b) the tenth business day (or such later date
as may be determined by the Board of Directors of the Company) after the date on
which any person or group of affiliated or associated persons commences a tender
or exchange offer the consummation of which would result in the beneficial
ownership by such Person of 15% or more of such outstanding Common Shares.
The Rights Agreement provides that, until the Separation Time, the
Rights will be transferred with and only with the Common Shares. Until the
Separation Time (or the earlier temination or expiration of the Rights), new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Separation Time (or the earlier termination or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation,
will also constitute the transfer of the Rights associated with the Common
Shares represented by such certificate. As soon as practicable following the
Separation Time, separate certificates evidencing the Rights (the "Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close
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of business on the Separation Time, and such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Separation Time. After the
Separation Time and prior to the Expiration Time, each Right (unless previously
terminated) will entitle the holder to purchase, for the Exercise Price, one
ten-thousandth of a share of the Preferred Shares having the rights described
below. The Rights will expire on the Expiration Time, unless the Expiration Time
is extended, or the Rights are earlier terminated by the Company. The term
"Expiration Time" is defined in the Rights Agreement and generally means April
16, 2007, unless the Rights are sooner exchanged or terminated.
The Exercise Price payable, and the number of outstanding Rights and
the number of one ten-thousandth interests in Preferred Shares issuable upon
exercise of each Right, are subject to adjustment in the event of a stock split
of the Common Shares or a stock dividend on the Common Shares payable in Common
Shares or subdivisions, consolidations or combinations of the Common Shares
occurring, in any such case, prior to the Separation Time.
If prior to the Separation Time, the Company distributes securities or
assets in exchange for Common Shares (other than regular cash dividends or a
dividend payable solely in Common Shares) whether by dividend, reclassification
or otherwise, the Company shall make such adjustments, if any, in the Exercise
Price, the number of Rights and otherwise as the Board of Directors deems
appropriate.
At a Flip-in Date, Rights owned by the Acquiring Person or any
affiliate or associate thereof or any transferee thereof will automatically
become void and, subject to the Exchange Option summarized below, each Right
will automatically become a right to buy, for the Exercise Price, that number of
Common Shares or, at the option of the Board of Directors, Preferred Shares
designed to have economic and voting terms similar to the Common Shares, in
either case, having a market value of twice the Exercise Price. If any person or
group acquires beneficial ownership of 15% or more of the outstanding Common
Shares without any intent to acquire or affect control of the Company, that
acquisition will not result in a Flip-in Date if such acquiror immediately
enters into an irrevocable commitment to promptly divest, and thereafter
promptly divests, sufficient Common Shares such that 15% or greater beneficial
ownership ceases. After a Flip-in Date occurs, the Company may not consolidate
or merge with, or sell 50% or more of its assets or earning power to, any
person, if the Company's Board of Directors is controlled by the Acquiring
Person, unless proper provision is made so that each Right would thereafter
become a right to buy, for the Exercise Price, that number of shares of common
stock of such other person having a market value of twice the Exercise Price.
At any time after a Flip-in Date occurs and prior to the time a person
or group of persons become the beneficial owner of more than 50% of the
oustanding Common Shares, the Board of Directors of the Company may elect to
exchange all of the outstanding Rights (other than Rights owned by such person
or group which have become void), for Common Shares at an exhange ratio (subject
to adjustment) of one Common Share per Right (the "Exchange Option").
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At any time prior to a Flip-in Date, the Board of Directors of the
Company may terminate the Rights. Immediately upon any termination of the
Rights, the right to exercise the Rights will terminate.
The Company and the Rights Agent may amend the Rights Agreement in any
respect prior to the occurrence of a Flip-in Date. Therafter, the Company and
the Rights Agent may amend the Rights Agreement in any respect which shall not
materially adversely affect the interests of holders of Rights generally or to
cure an ambiguity or to correct or supplement any provision which may be
inconsistent with any other provision or otherwise defective.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on June 26, 1997,
the following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Jack L. Bowman 6,617,285 399,177
Raymond C. Carnahan Jr. 6,621,450 395,012
Max Link 6,623,175 393,287
Jack J. Luchese 6,619,300 397,162
Herbert H. McDade 6,622,450 394,012
</TABLE>
The following proposals were submitted to the Company's Stockholders for
approval:
<TABLE>
<CAPTION>
Votes Abstained/
Votes For Votes Against Not Voted
--------- ------------- ---------------
<S> <C> <C> <C>
Amendment of the Company's ByLaws
to classify the Board of Directors into
three classes, each of which shall contain
an equal number of directors to the extent
possible, with directors in each class to be
elected to three-year terms. 2,141,439 1,268,897 3,606,126
Amendment of the Company's Certificate
of Incorporation to provide that stockholder
action by written consent without a meeting
must be taken by the holders of at least 80%
of the Company's outstanding shares of
Common Stock. 2,092,456 1,313,915 3,610,091
Amendment of the Company's Certificate
of Incorporation to increase the Company's
authorized capital stock to 25,000,000 shares
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
of Common Stock, par value $.001 per share,
and 1,000,000 shares of Preferred Stock, par
value $.01 per share. 2,109,067 1,309,916 3,597,479
Ratification of appointment of Ernst & Young
LLP as independent auditors for the fiscal year
ending December 31, 1997. 6,372,788 588,388 55,286
</TABLE>
The nominees for election as directors were all elected. The proposals to amend
the Company's Bylaws to classify the Board of Directors and to ratify the
selection of the Company's auditors received more than the number of votes
required for their approval, and were adopted. The proposals to amend the
Company's Certificate of Incorporation to provide for a higher vote for
stockholder action taken without a meeting and to increase the Company's
authorized capital stock received fewer than the number of votes required for
their approval, and were not adopted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3 Registrant's Bylaws, as amended (included as Exhibit
4.2 to the Registrant's registration statement on Form S-8
filed July 21, 1997 (registration no. 31717) and
incorporated herein by reference).
10.1* Amendment No. 1 to 1995 Employment Agreement by and between
CytRx Corporation and Jack J. Luchese
10.2* Change in Control Employment Agreement dated April 16, 1997
by and between CytRx Corporation and Jack J. Luchese
10.3* CytRx Corporation 1994 Stock Option Plan Amended and
Restated as of April 16, 1997
11 Statement re: computation of net loss per share
27 Financial Data Schedule (for SEC use only)
</TABLE>
* Indicates a management contract or compensating plan or arrangement.
(b) Reports on Form 8-K
On April 17, 1997, the Registrant filed a Current Report on Form 8-K
reporting the adoption of a Shareholder Protection Rights Plan by its
Board of Directors, effective April 16, 1997.
On June 3,1997, the Registrant filed a Current Report on Form 8-K
reporting the merger of its wholly-owned subsidiary, Vaxcel, Inc.,
with Zynaxis, Inc. on May 21, 1997. On July 21, 1997 the Registrant
file Amendment No. 1 to the Form 8-K filed on June 3, 1997 in order to
provide the historical financial statements of Zynaxis, Inc. required
15
<PAGE> 16
under Rule 3-05 of Regulation S-X and the pro forma financial
information required under Article 11 of Regulation S-X.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTRX CORPORATION
(Registrant)
Date: August 14, 1997 By: /s/ Mark W. Reynolds
--------------- ------------------------------
Mark W. Reynolds
Chief Financial Officer
(Chief Accounting Officer
and a duly authorized officer)
16
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 1
TO
1995 EMPLOYMENT AGREEMENT
BETWEEN
CYTRX CORPORATION
AND
JACK J. LUCHESE
This Amendment No. 1 ("Amendment") to Employment Agreement is made and
executed this 16th day of April, 1997, by and between CYTRX CORPORATION ("CytRx"
or the "Company"), a Delaware corporation having its principal place of business
at 154 Technology Parkway, Technology Park/Atlanta, Norcross, Georgia 30092, and
JACK J. LUCHESE ("Mr. Luchese") who currently resides at 3030 Castle Pines
Drive, Duluth, Georgia 30136.
WHEREAS, the Company and Mr. Luchese have heretofore entered into an
amended and restated Employment Agreement, dated as of March 7, 1995 (the "1995
Agreement");
WHEREAS, the Compensation Committee of the Board of Directors of the
Company at its meeting on April 16, 1997, approved certain changes to the terms
of the 1995 Agreement, consistent with Mr. Luchese and the Company entering into
a separate Change in Control Employment Agreement (the "Change in Control
Employment Agreement") concurrently with such amendment;
WHEREAS, the Company and Mr. Luchese desire to modify the 1995
Agreement to delete the provisions therein relating to a change in control of
the Company;
NOW, THEREFORE, in consideration of the mutual covenants and promises
made in this Amendment, the parties do hereby agree as follows:
1. DELETION OF PARAGRAPH 8 "CHANGE IN CONTROL". Paragraph 8 of the 1995
Agreement be and hereby is deleted in its entirety, effective upon the execution
by the Company and Mr. Luchese of that certain Change in Control Employment
Agreement dated on or about April 16, 1997.
2. AMENDMENT TO PARAGRAPH 6(C)(4). Paragraph 6(c)(4) of the 1995 Agreement
be and hereby is amended by deleting the parenthetical phrase "(as defined in
Paragraph 8 hereof)" and substituting therefor the following "(as defined in
such warrant)".
<PAGE> 2
3. AMENDMENT TO PARAGRAPH 12(B). Paragraph 12(b) of the 1995 Agreement
be and hereby is amended by deleting the reference therein to Paragraph 8.
4. AMENDMENT TO PARAGRAPH 3(A). Paragraph 3(a) of the 1995 Agreement be
and hereby is amended by deleting the fourth sentence thereof and substituting
therefor the following: "The base salary may be increased in any year based on
Mr. Luchese's performance, but will not be decreased."
5. EFFECT OF AMENDMENT. All provisions of the 1995 Agreement not
modified by the provisions of this Amendment shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
under seal on the day and year first above written.
/s/ Jack J. Luchese
-----------------------------------------
Jack J. Luchese
Attest: CYTRX CORPORATION:
/s/ Mark W. Reynolds /s/ William B. Fleck
- --------------------- -----------------------------------------
Corporate Secretary By: William B. Fleck
(CORPORATE SEAL) Title: Vice President - Human Resources
<PAGE> 1
EXHIBIT 10.2
CHANGE IN CONTROL EMPLOYMENT AGREEMENT BY AND BETWEEN
CYTRX CORPORATION AND JACK J. LUCHESE
<PAGE> 2
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between CytRx Corporation, a Delaware corporation
(the "Company") and Jack J. Luchese (the "Executive"), dated as of the 16th day
of April, 1997.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during
the Change of Control Period (as defined in Section l(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
<PAGE> 3
(c) The "1995 Employment Agreement" shall mean that
certain Employment Agreement, dated as of March 7, 1995, as amended, by and
between the Company and the Executive.
2. Change of Control. For the purposes of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 25% or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition by a Person who is on April
1, 1997 the beneficial owner of 25% or more of the Outstanding Company Voting
Securities, (ii) any acquisition directly from the Company, (iii) any
acquisition by the Company, (iv) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (v) any acquisition by any corporation pursuant
to a transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section 2; or
(b) Individuals who, as of April 1, 1997, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to April 1, 1997 whose election, or nomination for election
by the Company's stockholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either directly
or through one or more
- 2 -
<PAGE> 4
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 25% or more of the combined voting power of the
then outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination, and (iii) at
least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the second
anniversary of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Effective Date, and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary
to discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) engage in other business activities
that do not represent a conflict of interest with his duties to the Company,
and (C) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
- 3 -
<PAGE> 5
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to 12 times the highest monthly
base salary paid or payable, including any base salary which has been earned
but deferred, to the Executive by the Company and its affiliated companies in
respect of the 12-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used
in this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's highest annual bonus for the last three full fiscal years
prior to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless
the Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at
any time during the 120-day period immediately preceding the Effective Date or
if more favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its affiliated
companies.
- 4 -
<PAGE> 6
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 13(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for 180 consecutive days as a
result of incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by the
- 5 -
<PAGE> 7
Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in
illegal conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated,
- 6 -
<PAGE> 8
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company business
to a substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 12(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the
Company for Cause, or by the Executive for Good Reason, shall be communicated
by Notice of Termination to the other party hereto given in accordance
with Section 13(b) of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i)
if the Executive's employment is terminated by the Company for Cause, or by
the Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the
- 7 -
<PAGE> 9
Company other than for Cause or Disability, the Date of Termination shall be
the date on which the Company notifies the Executive of such termination,
and (iii) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability, or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's
Annual Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned but deferred, for
the most recently completed fiscal year during the Employment Period, if any
(such amount being referred to as the "Most Recent Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365, and
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to two times the
sum of (1) the Executive's Annual Base Salary, and (2) the Most Recent Annual
Bonus; and
C. an amount equal to the excess of (a)
the actuarial equivalent of the benefit under the Company's qualified
retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no
less favorable to the Executive than those in effect under the Company's
Retirement Plan immediately prior to the Effective Date), and any excess or
supplemental retirement plans in which the Executive participates (together,
the "SERP") which the Executive would receive if the Executive's employment
continued for two years after the Date of Termination, assuming for this
purpose that all accrued benefits are fully vested, and, assuming that the
Executive's compensation in each of such two years is the Annual Base Salary
required by Section 4(b)(i) plus the Most Recent Annual Bonus, over (b) the
actuarial equivalent of the Executive's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP as of the Date of Termination;
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the
- 8 -
<PAGE> 10
Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's employment had not
been terminated or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies and their families, provided, however, that if
the Executive becomes re-employed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable period
of eligibility. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits pursuant to
such plans, practices, programs and policies, the Executive shall be considered
to have remained employed until two years after the Date of Termination and to
have retired on the last day of such period;
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits").
(iv) Notwithstanding any provision of this Agreement
to the contrary, the Executive shall forfeit his right to receive, or, to the
extent such amounts have previously been paid to the Executive, shall repay in
full to the Company with interest at 8% per annum within thirty (30) days of a
final determination of the Executive's liability therefor as set forth below,
the amount described in Section 6(a)(i)(B) of this Agreement if at any time
during the period of two years after the Date of Termination (the "Restricted
Period") he violates the restrictions on competition set forth in Section 11
hereof. Any determination of whether the Executive has violated the such non-
competition restrictions shall be made by arbitration in Atlanta, Georgia under
the Rules of Commercial Arbitration (the "Rules") of the American Arbitration
Association, which Rules are deemed to be incorporated by reference herein.
(b) Death. If the Executive's employment is terminated
by reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable of the following: (1) the death benefits
described in Section 7(c) of the 1995 Employment Agreement (whether or not
superseded by this Agreement), (2) benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs,
- 9 -
<PAGE> 11
practices and policies relating to death benefits, if any, as in effect with
respect to other peer executives and their beneficiaries at any time during
the 120-day period immediately preceding the Effective Date, or (3) similar
benefits in effect on the date of the Executive's death with respect to other
peer executives of the Company and its affiliated companies and their
beneficiaries.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without furthe obligations to the
Executive, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(c) shall include, and the Executive shall be
entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of the following: (1) the
post-disability benefits described in Section 7(c) of the 1995 Employment
Agreement (whether or not superseded by this Agreement), (2) disability and
other benefits generally provided by the Company and its affiliated companies
to disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date, or (3)
disability and other benefits in effect at any time thereafter generally with
respect to other peer executives of the Company and its affiliated companies
and their families.
(d) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive (x) his Annual Base
Salary through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(d) shall include, and the Executive
shall be entitled after his termination of employment to receive, the
post-termination benefits described in the first sentence of Section 7(a) of
the 1995 Employment Agreement (whether or not superseded by this Agreement).
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 13(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement
- 10 -
<PAGE> 12
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable federal rate provided for in
Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Certain Adjustments for Excise Tax.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then, prior to the
making of any Payment to the Executive, a calculation shall be made comparing
(i) the net benefit to the Executive of the Payment after payment of the Excise
Tax and all applicable federal, state and local income and other taxes, to (ii)
the net benefit to the Executive if the Payment had been limited to the extent
necessary to avoid being subject to the Excise Tax (but after payment of all
other applicable federal, state and local income and other taxes). If the
amount calculated under (i) above is less than the amount calculated under (ii)
above, then the Payment shall be limited to the extent necessary to avoid being
subject to the Excise Tax, and the Executive may select the component of the
Payment to which such limitation is to be applied.
(b) The determination of whether an Excise Tax would be
imposed, the amount of such Excise Tax, and the calculation of the amounts
referred to in (i) and (ii) above shall be made by Ernst & Young LLP or such
other nationally-recognized public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the
- 11 -
<PAGE> 13
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of
Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any determination by
the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Payments which the Executive was entitled to, but did not receive
pursuant to this Section 9, could have been made without the imposition of the
Excise Tax ("Underpayment"). In such event, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation of
the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
11. Restriction on Competition. In order to protect the Company's
investment, which includes but is not limited to, time, money and proprietary
information and in recognition of the unique character of the trade secrets and
other confidential information which are the basis of the Company's business
and future business opportunities, in recognition of the worldwide geographic
scope of the Company's business and/or potential business opportunities and the
Executive's contemplated role, responsibilities and knowledge therefor, for a
period of two years following the Date of Termination, regardless of the reason
therefor, the Executive agrees that he will not work as a consultant for or
directly or indirectly perform services anywhere in the world for himself or
any other person, firm or corporation in any capacity involving the study,
development, use, manufacture or marketing of all formulations and methods
using the surface-active copolymers described in U.S. Patent No. 4,801,452,
U.S. Patent Application Serial No. 291,925, U.S. Patent Application Serial No.
107,358, U.S. Patent Application Serial No. 208,335, and U.S. Patent
Application Serial No. 150,731. The foregoing shall not preclude (i) the
employment of the Executive, whether as a director,
- 12 -
<PAGE> 14
officer, employee, consultant or otherwise, by a research partner, joint
venture partner, licensee or other person, or corporation or entity that at
such time is authorized by the Company to have rights in or to restricted
products, or (ii) the ownership by the Executive of investment securities
representing not more than three per cent of the outstanding voting securities
of company engaged in a pharmaceutical business, whose stock and/or securities
are traded on a national stock exchange or national quotations system, provided
that such investment is passive and not with the intention of controlling such
business.
12. Successors.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than-by a written agreement executed by
the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Mr. Jack J. Luchese
3030 Castle Pines Drive
Duluth, Georgia 30136
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<PAGE> 15
If to the Company:
the Company Corporation
154 Technology Parkway
Norcross, Georgia 30092
Attention: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the Company
is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date,
the Executive's employment and/or this Agreement may be terminated by either
the Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement. From and
after the Effective Date, this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof, including
without limitation the 1995 Employment Agreement; provided, however, that the
following shall expressly survive the Effective Date of this Agreement: (i)
Paragraphs 6, 10, 11(a), 11(c), 11(d) and 12(a) of the 1995 Employment
Agreement, and (ii) any and all outstanding rights, options and/or warrants to
purchase stock of the Company held by the Executive on the Effective Date.
(signatures on following page)
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<PAGE> 16
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused this Agreement to be executed in its name on its behalf by
its undersigned officer thereunto, duly authorized, all as of the day and year
first above written.
/s/ Jack J. Luchese
------------------------------------
Jack J. Luchese
CYTRX CORPORATION
By: /s/ William B. Fleck
---------------------------------
William B. Fleck Vice
President - Human Resources
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<PAGE> 1
EXHIBIT 10.3
CYTRX CORPORATION 1994 STOCK OPTION PLAN
(amended and restated as of April 16, 1997)
<PAGE> 2
CYTRX CORPORATION
1994 STOCK OPTION PLAN
AMENDED AND RESTATED AS OF APRIL 16, 1997
The purpose of the 1994 Stock Option Plan (the "Plan") of CytRx
Corporation (the "Company") is to promote the interests of the Company by
providing incentives to (i) designated officers and other employees of the
Company or a Subsidiary Corporation (as defined herein), (ii) members of the
Board of Directors (the "Board") and (iii) independent contractors and
consultants (who may be individuals or entities) who perform services for the
Company, to encourage them to acquire a proprietary interest, or to increase
their proprietary interest, in the Company. The Company believes that the Plan
will cause participants to contribute materially to the growth of the Company,
thereby benefiting the Company's stockholders. For purposes of the Plan, the
terms "Parent Corporation" and "Subsidiary Corporation" shall have the meanings
set forth in subsections (e) and (f) of Section 424 of the Internal Revenue
Code of 1986, as amended (the "Code").
SECTION 1. Administration
The Plan shall be administered and interpreted by a committee of
the Board (the "Committee") consisting of not less than two persons, all of
whom shall be (i) "outside directors" as that term is used in Section 162(m) of
the Code and the regulations promulgated thereunder or any successor
provisions, and (ii) "non-employee directors" as such term is defined in Rule
16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") or any successor provisions. The Committee shall have the sole
authority to determine (i) who is eligible to receive Grants (as defined in
Section 2 below) under the Plan, (ii) the type, size and terms of each Grant
under the Plan (subject to Section 4 below), (iii) the time when each Grant
will be made and the duration of any exercise or restriction period; (iv) any
restrictions on resale applicable to the shares to be issued or transferred
pursuant to the Grant; and (v) any other matters arising under the Plan.
Non-Employee Directors of the Board, as defined below, may receive Grants only
pursuant to the provisions of Section 5(j). The Committee may, if it so
desires, base any of the foregoing determinations upon the recommendations of
management of the Company. The Committee shall have full power and authority
to administer and interpret the Plan and to adopt or amend such rules,
regulations, agreements and instruments as it may deem appropriate for the
proper administration of the Plan. The Committee's interpretations of the Plan
and all determinations made by the Committee pursuant to the powers vested in
it hereunder shall be conclusive and binding on all persons having any
interests in the Plan or in any Grants under the Plan. No person acting under
this Section shall be held liable for any action or determination made in good
faith with respect to the Plan or any Grant under the Plan.
SECTION 2. Grants
Grants under the Plan shall consist of Incentive Stock Options (as
defined in Section 5(b) below) and Nonqualified Stock Options (as defined in
Section 5(b) below) (hereinafter collectively referred to as "Grants" or "Stock
Options"). All Grants shall be subject to the terms and conditions set forth
herein and to such other terms and conditions of any nature (as long as they
are not inconsistent with the Plan) as the Committee deems appropriate and
specifies in writing to the participant in the document designating the Grant
(the "Grant Letter"). The Committee shall approve the form and provisions of
each Grant Letter. Grants under any section
<PAGE> 3
of the Plan need not be uniform as among the participants receiving the same
type of Grant, and Grants under two or more sections of the Plan may be
combined in one Grant Letter; provided, however, that Grants to Non-Employee
Directors, as defined below, shall be made only in accordance with the
provisions of Section 5(j).
SECTION 3. Shares Subject to the Plan
(a) The aggregate number of shares of the Common Stock, par value
$.001 per share ("Common Stock"), of the Company that may be issued or
transferred under the Plan is 1,500,000, subject to adjustment pursuant to
Section 3(b) below. The maximum number of shares of Common Stock for which any
Grantee may be granted Stock Options under the Plan is 500,000, subject to
adjustment pursuant to Section 3(b) below. The shares may be authorized but
unissued shares or reacquired shares. If and to the extent that Stock Options
granted under the Plan terminate, expire or are canceled without having been
exercised (including shares canceled as part of an exchange of Grants), the
shares subject to such Grant shall again be available for subsequent Grants
under the Plan.
(b) If any change is made to the Common Stock (whether by reason
of merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination of shares, or exchange of shares or any other change
in capital structure made without receipt of consideration), then unless such
event or change results in the termination of all outstanding Grants under the
Plan, the Committee shall preserve the value of the outstanding Grants by
adjusting the maximum number and class of shares issuable under the Plan to
reflect the effect of such event or change in the Company's capital structure,
and by making appropriate adjustments to the number and class of shares, the
exercise price of each outstanding Stock Option and otherwise, except that any
fractional shares resulting from such adjustments shall be eliminated by
rounding any portion of a share equal to .500 or greater up, and any portion of
a share equal to less than .500 down, in each case to the nearest whole number.
SECTION 4. Eligibility for Participation
Officers and other employees of the Company or a Subsidiary
Corporation, members of the Board, and independent contractors and consultants
who perform services for the Company shall be eligible to participate in the
Plan (hereinafter referred to individually as an "Eligible Participant" and
collectively as "Eligible Participants"). Only Eligible Participants who are
officers or other employees of the Company or a Subsidiary Corporation shall be
eligible to receive Incentive Stock Options. All Eligible Participants shall
be eligible to receive Nonqualified Stock Options. The Committee shall select
from among the Eligible Participants those who will receive Grants (the
"Grantees") and shall determine the number of shares of Common Stock subject to
each Grant; provided, however, that members of the Board who are not employed
in any capacity by the Company (hereinafter referred to as "Non-Employee
Directors") may only receive grants of Stock Options pursuant to Section 5(j).
The Committee may, if it so desires, base any such selections or determinations
upon the recommendations of management of the Company. Nothing contained in
the Plan shall be construed to limit in any manner whatsoever the right of the
Company to grant rights or options to acquire Common Stock or awards of Common
Stock otherwise than pursuant to the Plan.
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<PAGE> 4
SECTION 5. Stock Options
(a) Number of Shares. The Committee, in its sole discretion,
shall determine the number of shares of Common Stock that will be subject to
each Stock Option.
(b) Type of Stock Option and Exercise Price.
(1) The Committee may grant options qualifying as
incentive stock options within the meaning of Section 422 of the Code
("Incentive Stock Options") and other stock options ("Nonqualified
Stock Options"), in accordance with the terms and conditions set forth
herein, or may grant any combination of Incentive Stock Options and
Nonqualified Stock Options (hereinafter referred to collectively as
"Stock Options"). The exercise price per share of an Incentive Stock
Option shall be the fair market value (as defined herein) of a share
of Common Stock on the date of grant. If the Grantee of an Incentive
Stock Option is the owner (as determined under Section 424(d) of the
Code) of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or a Parent Corporation
or Subsidiary Corporation, the exercise price per share in the case of
an Incentive Stock Option shall not be less than 110% of the fair
market value of a share of Common Stock on the date of grant.
(2) For all valuation purposes under the Plan, the fair
market value of a share of Common Stock shall be determined in
accordance with the following provisions:
(A) If the Common Stock is not at the time listed
or admitted to trading on any stock exchange but is traded
either on the over-the-counter market or listed on the Nasdaq
National Market, the fair market value shall be the closing
selling price of one share of Common Stock on the date in
question as such price is reported by the Nasdaq system or any
successor system. If there is no reported closing selling
price for the Common Stock on the date in question, then the
closing selling price on the next preceding date for which
such quotation exists shall be determinative of fair market
value.
(B) If the Common Stock is at the time listed or
admitted to trading on any stock exchange, then the fair
market value shall be the closing selling price of one share
of Common Stock on the date in question on the stock exchange
determined by the Committee to be the primary market for the
Common Stock, as such prices are officially quoted on such
exchange. If there is no reported closing selling price of
Common Stock on such exchange on the date in question, then
the fair market value shall be the closing selling price on
the next preceding date for which such quotation exists.
(C) If the Common Stock is at the time neither
listed nor admitted to trading on any stock exchange nor
traded in the over-the-counter market (or, if the Committee
determines that the value as determined pursuant to Section
5(b)(2)(A) or (B) above does not reflect fair market value),
then the Committee shall determine fair market value after
taking into account such factors as it deems appropriate.
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<PAGE> 5
(c) Exercise Period. The Committee shall determine the exercise
period of each Stock Option. The exercise period shall not exceed ten years
from the date of grant. However, if the Grantee of an Incentive Stock Option
is the owner (as determined under Section 424(d) of the Code) of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or a Parent Corporation or Subsidiary Corporation, the
exercise period shall not exceed five years from the date of grant.
Notwithstanding any determinations by the Committee regarding the exercise
period of any Stock Option, a Change in Control (as defined in Section 7) shall
have the effect set forth in Section 7.
(d) Vesting of Stock Options and Restrictions on Shares. The
vesting period for Stock Options shall commence on the date of grant and shall
end on the date or dates, determined by the Committee, that shall be specified
in the Grant Letter. The Committee may impose upon the shares of Common Stock
issuable upon the exercise of a Stock Option such restrictions as it deems
appropriate and specifies in the Grant Letter. During any period in which such
restrictions apply, the Committee, in such circumstances as it deems equitable,
may determine that all such restrictions shall lapse. Notwithstanding any
other provision of the Plan, all outstanding Stock Options shall become
immediately and fully vested and immediately exercisable upon a Change in
Control of the Company (as defined in Section 7 below).
(e) Manner of Exercise. A Grantee may exercise a Stock Option by
delivering a duly completed notice of exercise to the Corporate Secretary of
the Company, together with payment of the exercise price and any applicable tax
withholdings. Such notice may include instructions authorizing the Company to
deliver the certificates representing the shares of Common Stock issuable upon
the exercise of such Stock Option to any designated registered broker or dealer
("Designated Broker"). Such instructions shall designate the account into
which the shares are to be deposited. The Grantee may tender such notice of
exercise, which has been properly executed by the Grantee, and the
aforementioned delivery instructions to any Designated Broker.
(f) Termination of Eligible Status, Disability or Death.
(1) If a Grantee terminates employment or otherwise
ceases to be an Eligible Participant for any reason (other than, in
the case of an individual, the death of such individual) any Stock
Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within three months after the date on which the
Grantee ceases to be an Eligible Participant (or within such other
period of time, which may be longer or shorter than three months, as
may be specified in the Grant Letter), but in any event no later than
the date of expiration of the exercise period, except that in the case
of an individual Grantee who is disabled within the meaning of Section
22(e)(3) of the Code, such period shall be one year rather than three
months (except as otherwise provided in the Grant Letter).
(2) In the event of the death of an individual Grantee
while he or she is an Eligible Participant or within not more than
three months after the date on which the Grantee ceases to be an
Eligible Participant (or within such other period of time, which may
be longer or shorter than three months, as may be specified in the
Grant Letter), any Stock Option which was otherwise exercisable by the
Grantee at the date of death may be exercised by the Grantee's
personal representative at any time prior to the expiration
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<PAGE> 6
of one year from the date of death, but in any event no later than the
date of expiration of the exercise period.
(g) Satisfaction of Exercise Price. The Grantee shall pay the
exercise price in cash, or, with the consent of the Committee in its sole
discretion, by delivering (or attesting his or her ownership of) shares of
Common Stock already owned by the Grantee and having a fair market value on the
date of exercise equal to the exercise price, or a combination of cash and
shares of Common Stock; provided however, that if shares of Common Stock are
used to pay the exercise price of a Stock Option, such shares must have been
held by the Grantee for at least six months. The Committee shall determine any
other methods by which the exercise price of a Stock Option may be paid, the
form of payment, including, without limitation, "cashless exercise"
arrangements, and the methods by which shares of Common Stock shall be
delivered or deemed to be delivered to Grantees. Without limiting the power
and discretion conferred on the Committee pursuant to the preceding sentence,
the Committee may, in the exercise of its discretion, but need not, allow a
Grantee to pay the exercise price of a Stock Option by directing the Company to
withhold from the shares of Common Stock that would otherwise be issued upon
exercise of the Stock Option that number of shares having a fair market value
on the exercise date equal to the exercise price, all as determined pursuant to
rules and procedures established by the Committee. The Grantee shall pay the
exercise price and the amount of withholding tax due, if any, at the time of
exercise. Shares of Common Stock shall not be issued or transferred upon any
purported exercise of a Stock Option until the exercise price and the
withholding obligation are fully paid.
(h) Limits on Incentive Stock Options. Each Grant of an Incentive
Stock Option shall provide that:
(1) the Stock Option is not transferable by the Grantee,
except, in the case of an individual Grantee, by will or the laws of
descent and distribution;
(2) the Stock Option is exercisable only by the Grantee,
except as otherwise provided herein or in the Grant Letter in the
event of the death of an individual Grantee; and
(3) the aggregate fair market value of the Common Stock
on the date of the Grant with respect to which Incentive Stock Options
are exercisable for the first time by a Grantee during any calendar
year under the Plan and under any other stock option plan of the
Company shall not exceed $100,000.
(i) Replacement Stock Options. If a Stock Option granted pursuant
to the Plan may be exercised by a Grantee by means of a stock-for-stock swap
method of exercise as provided in Section 5(g) above, then the Committee may,
in its sole discretion and at the time of the original Grant, authorize the
Grantee to automatically receive a replacement Stock Option pursuant to this
Section of the Plan. This replacement Stock Option shall cover a number of
shares of Common Stock determined by the Committee, but in no event more than
the number of shares equal to the difference between the number of shares of
the original Stock Option exercised and the net shares received by the Grantee
from such exercise. The per share exercise price of the replacement Stock
Option shall equal the then current fair market value of a share of Common
Stock, and shall have a term extending to the expiration date of the original
Stock Option. The Committee shall have the right, in its sole discretion and
at any time, to discontinue the
- 6 -
<PAGE> 7
automatic grant of replacement Stock Options if it determines the continuance
of such Grants to no longer be in the best interest of the Company.
(j) Stock Option Grants to Non-Employee Directors. Each
Non-Employee Director will receive a grant of a Nonqualified Stock Option to
purchase 20,000 shares of Common Stock upon the date he or she first becomes a
member of the Board, and thereafter will receive a grant of a Nonqualified
Stock Option to purchase 7,500 shares of Common Stock (subject to adjustment as
provided in this Plan) as of the date of the Company's Annual Meeting of
Stockholders each year.
(1) Option Exercise Price. Stock Options granted under
this Section 5(j) shall have a per share exercise price equal to the
fair market value of a share of Common Stock on the date of grant, and
such Stock Option shall become exercisable, with respect to 33% of the
shares of Common Stock underlying the option, on each anniversary
following the date of grant.
(2) Administration. The provisions of this Section 5(j)
are intended to operate automatically and not require administration.
However, to the extent that administrative determinations are
required, the provisions of this Section 5(j) shall be made by the
members of the Board who are not eligible to receive Grants under this
Section 5(j), but in no event shall such determinations affect the
eligibility of Grantees, the determination of the exercise price, the
timing of the Grants or the number of shares subject to Stock Options
hereunder.
(3) Applicability of Plan Provisions. Except as
otherwise provided in this Section 5(j), the Nonqualified Stock
Options to Non-Employee Directors shall be subject to the provisions
of this Plan applicable to Nonqualified Stock Options to other
persons.
SECTION 6. Transferability of Stock Options
No Stock Option shall be assignable or transferable by a Grantee other
than by will or the laws of descent and distribution or, except in the case of
an Incentive Stock Option, pursuant to a domestic relations order that would
satisfy Section 414(p)(1)(A) of the Code if such section applied to a Stock
Option issued under the Plan; provided, however, that the Committee may (but
need not) permit other transfers where the Committee concludes that such
transferability (i) does not result in accelerated taxation, (ii) does not
cause any Stock Option intended to be an Incentive Stock Option to fail to be
described in Code Section 422(b), and (iii) is otherwise appropriate and
desirable, taking into account any state or federal tax or securities laws
applicable to transferable stock options.
Only a Grantee or his or her permitted transferee (or, in the case of
an individual Grantee, his or her authorized legal representative) may exercise
rights under a Grant. Upon the death of an individual Grantee, the personal
representative or other person entitled to succeed to the rights of the Grantee
("Successor Grantee") may exercise such rights. A Successor Grantee shall
furnish proof satisfactory to the Company of such person's right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution.
SECTION 7. Change of Control
- 7 -
<PAGE> 8
For purposes of the Plan, "Change in Control" means and includes each
of the following:
(1) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (1), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition by a Person who is
on April 1, 1997 the beneficial owner of 25% or more of the
Outstanding Company Voting Securities, (ii) any acquisition directly
from the Company, (iii) any acquisition by the Company, (iv) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company, or (v) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of
subsection (3) of this definition; or
(2) Individuals who, as of April 1, 1997, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to April 1, 1997 whose election, or
nomination for election by the Company's stockholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(3) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners of
the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 60% of the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of
the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Voting
Securities, and (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 25%
or more of the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Business Combination, and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
- 8 -
<PAGE> 9
(4) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
If a Change in Control occurs, then each Stock Option shall become
immediately and fully vested and immediately exercisable. Before or after the
occurrence of an anticipated Change in Control, the Committee, in its
discretion, may provide that outstanding Stock Options may be canceled
unilaterally by the Company in exchange for an amount equal to (x) the same
consideration each Employee and Non-Employee Director otherwise would receive
with respect to Common Stock subject to the Stock Option if such Common Stock
has been sold, surrendered, exchanged or otherwise in the transaction
constituting the Change in Control, less (y) the aggregate exercise price with
respect to the Common Stock subject to such Stock Option.
SECTION 8. Stockholder Approval; Effective Date
The Plan was approved by the stockholders of the Company on May 19,
1994, and became effective on June 1, 1994. Pursuant to Section 9, the Plan
was amended and restated by the Board of Directors of the Company on April 16,
1997, effective as of such date.
SECTION 9. Amendment and Termination of the Plan
(a) Amendment. The Board or the Committee may, at any time and
from time to time, amend, modify or terminate the Plan without stockholder
approval; provided, however, that the Board or Committee may condition any
amendment or modification on the approval of stockholders of the Company if
such approval is necessary or deemed advisable with respect to tax, securities
or other applicable laws, policies or regulations.
(b) Termination of Plan. The Plan shall terminate on June 1, 2004
unless earlier terminated by the Board or unless extended by the Board with the
approval of the stockholders.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Plan that occurs after a Grant is made shall
not result in the termination or amendment of the Grant unless the Grantee
consents or unless the Committee acts under Section 16(b) below. The
termination of the Plan shall not impair the power and authority of the
Committee with respect to an outstanding Grant. Whether or not the Plan has
terminated, an outstanding Grant may be terminated or amended under Section
16(b) below or may be amended by agreement of the Company and the Grantee which
is consistent with the Plan.
SECTION 10. Funding of the Plan
The Plan shall be unfunded and shall not create (or be construed to
create) a trust or separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company and any participant or beneficiary
of a participant. To the extent any person holds any obligation of the Company
by virtue of an award granted under the Plan, such obligation shall merely
constitute a general unsecured liability of the Company and accordingly shall
not confer upon such person any right, title or interest in any assets of the
Company.
SECTION 11. Rights of Eligible Participation
- 9 -
<PAGE> 10
Nothing in the Plan shall entitle any Eligible Participant or other
person to any claim or right to any Grant under the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any Eligible
Participant or Grantee any rights to be retained by the Company in any
capacity, whether as an employee, non-employee member of the Board, independent
contractor, consultant or otherwise.
SECTION 12. Withholding of Taxes
The Company shall have the right to require the Grantee to pay to the
Company the amount of any taxes which the Company is required to withhold in
respect of such Grants or to take whatever action it deems necessary to protect
the interests of the Company in respect of such tax liabilities, including,
without limitation, withholding a portion of the shares of Common Stock
otherwise deliverable pursuant to the Plan. The Company's obligation to issue
or transfer shares of Common Stock upon the exercise of a Stock Option shall be
conditioned upon the Grantee's compliance with the requirements of this Section
to the satisfaction of the Committee.
SECTION 13. Agreements with Grantees
Each Grant made under the Plan shall be evidenced by a Grant Letter
containing such terms and conditions as the Committee shall approve.
SECTION 14. Requirements for Issuance of Shares
No Common Stock shall be issued or transferred under the Plan unless
and until all applicable legal requirements have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Stock Option on the Grantee's undertaking in writing to comply with such
restrictions on any subsequent disposition of the shares of Common Stock issued
or transferred thereunder as the Committee shall deem necessary or advisable as
a result of any applicable law, regulation or official interpretation thereof,
and certificates representing such shares may be legended to reflect any such
restrictions.
SECTION 15. Headings
The section headings of the Plan are for reference only. In the event
of a conflict between a section heading and the content of a section of the
Plan, the content of the section shall control.
SECTION 16. Miscellaneous
(a) Substitute Grants. The Committee may make a Grant to an
employee, a non-employee director, or an independent contractor or consultant
of another corporation, if such person shall become an Eligible Participant by
reason of a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or a Subsidiary Corporation
and such other corporation. Any such Grant shall be made in substitution for a
stock option granted by the other corporation ("Substituted Stock Incentives"),
but the terms and conditions of the substitute Grant may vary from the terms
and conditions required by the Plan and from those of the Substituted Stock
Incentives. The Committee shall prescribe the provisions of the substitute
Grants.
- 10 -
<PAGE> 11
(b) Compliance with Law. The Plan, the exercise of Grants and the
obligations of the Company to issue or transfer shares of Common Stock under
Grants shall be subject to all applicable laws and required approvals by any
governmental or regulatory agencies. The Committee may revoke any Grant if it
is contrary to law or modify any Grant to bring it into compliance with any
valid and mandatory government regulations. The Committee may also adopt rules
regarding the withholding of taxes on payments to Grantees. The Committee may,
in its sole discretion, agree to limit its authority under this Section.
(c) Ownership of Stock. A Grantee, transferee or Successor
Grantee shall have no rights as a stockholder with respect to any shares of
Common Stock covered by a Grant until the shares are issued or transferred to
the Grantee, transferee or Successor Grantee on the stock transfer records of
the Company.
- 11 -
<PAGE> 1
EXHIBIT 11
CYTRX CORPORATION
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
COMPUTATION OF LOSS PER SHARE - PRIMARY
Three Month Period Ended June 30, Six Month Period Ended June 30,
--------------------------------- ----------------------------------
1997 1996 1997 1996
---------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Net loss $(2,263,292) $ (1,145,379) $(2,935,652) $ (2,457,318)
=========== ============ =========== ============
Average number of common shares outstanding 7,409,712 7,864,216 7,425,289 7,862,090
Common shares issuable assuming exercise of
stock options and warrants (1) -- -- -- --
----------- ------------ ----------- ------------
Total 7,409,712 7,864,216 7,425,289 7,862,090
----------- ------------ ----------- ------------
Net loss per share $ (0.31) $ (0.15) $ (0.40) $ (0.31)
=========== ============ =========== ============
COMPUTATION OF LOSS PER SHARE - FULLY DILUTED
Net loss $(2,263,292) $ (1,145,379) $(2,935,652) $ (2,457,318)
----------- ------------ ----------- ------------
Average number of common shares outstanding 7,409,712 7,864,216 7,425,289 7,862,090
Common shares issuable assuming exercise of
stock options and warrants (1) -- -- -- --
----------- ------------ ----------- ------------
Total 7,409,712 7,864,216 7,425,289 7,862,090
----------- ------------ ----------- ------------
Net loss per share $ (0.31) $ (0.15) $ (0.40) $ (0.31)
=========== ============ =========== ============
</TABLE>
(1) Stock options and warrants outstanding are excluded from the computation
of net loss per share since their effect would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,761,957
<SECURITIES> 8,393,008
<RECEIVABLES> 2,524,930
<ALLOWANCES> 0
<INVENTORY> 11,045
<CURRENT-ASSETS> 15,858,872
<PP&E> 7,294,804
<DEPRECIATION> 2,345,307
<TOTAL-ASSETS> 25,075,412
<CURRENT-LIABILITIES> 2,663,936
<BONDS> 0
0
0
<COMMON> 7,966
<OTHER-SE> 21,667,825
<TOTAL-LIABILITY-AND-EQUITY> 25,075,412
<SALES> 7,065,330
<TOTAL-REVENUES> 7,688,701
<CGS> 4,758,612
<TOTAL-COSTS> 4,758,612
<OTHER-EXPENSES> 5,991,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,935,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,935,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,935,652)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
